The Harmonized Index of Consumer Prices at constant tax rates (HICP-CT) is a new series of inflation indices. The HICP-CT follows the same computation principles as the HICP, but is based on prices at constant tax rates. These new series show the potential impact of changes in indirect taxes (e.g. VAT and excise duties) on the overall inflation.
The HICP-CT is an important tool for analysing the causes of inflation and for forecasting the impact of future tax changes on inflation. It has to be emphasised that they do not provide an exact measure of the impact, rather an indication for the upper limit of the impact. In effect, the difference between HICP and HICP-CT growth rates points to the theoretical impact of tax changes on overall HICP inflation, assuming an instantaneous pass-through of tax rate changes on the price paid by the consumer.
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